If one is prepared to accept
what is generally portrayed in the media – the economy is
pretty much run by Finance Ministers, Reserve Banks and
Treasuries, “turning on and off the taps” to stabilize
the economy, by tweaking interest rates and injecting
billions here or there.

The reality however is
considerably different.

“Inflating bubbles” are hugely
popular and it is rare for the Authorities to alert the
public to the significance and consequences of them.
Politicians revel in the “bubble revenue” being
generated. As these bubbles pop and deflate, the Authorities
continue the charade, by conveying the impression that they
have “things under control” and the capacity to provide
“stability”. The term “fundamentally sound” is
trotted out with nauseating solemnity and repetition.

With respect to housing - the “language” has changed
over the years, to the extent that even economists, urban
planners and property appraisers / valuers (who of all
people should be “schooled” in the destructiveness of
bubbles) have generally convinced themselves that property
inflation is beneficial.

We had been constantly bombarded
by economists / property commentators in the media,
promoting the idea to the public, that housing inflating at
10 and 20% per annum is “growth”(with the income / price
relationship completely ignored) which was further
reinforced by the extraordinary concept of the “wealth
effect” of property inflation. And confusing the terms
”boom’ and “bubble” as well. This is no different
than a doctor telling you how much better you will be with
cancer. Any member of the medical profession telling one
that – would rightly be considered a crank or a
quack.

Two years ago a US housing market commentator
stating at one stage “It’s the growing markets that are
having the problems”. If he had said “It’s the
inflating markets that are having the problems” – he may
have illustrated to the readers, that he knew what he was
talking about.

But the “political dynamics” of an
inflating housing bubble are the polar opposite to those of
a deflating bubble. What we are currently experiencing
globally – is an unprecedented “mother of all bubbles”
deflating - creating massive political, social and economic
disruption. As these costs become increasingly obvious, the
“constituency for change” is quietly strengthening. Once
these “costs” are adequately appreciated and understood
and felt – the general public and policymakers will be in
no hurry to repeat the experience.

Something similar –
but hopefully not as severe - as what the Germans
experienced with hyper –inflation through the years of the
Weimar Republic – which has instilled through the
generations a lasting aversion to inflation. We should not
be surprised the German housing market has the policy
settings in place to minimize the risks of housing
inflation.

As these current bubbles (led by the
unprecedented housing bubbles) are deflating – also
deflating is the political and public esteem for the three
major professions involved with these issues –urban
planners, economists and property appraisers / valuers. They
all have much “soul searching” to do.

One only has to
observe the confusion - and indeed panic - within the
economics profession at the moment –and the near unanimous
calls in vainly attempting to “re liquefy” the
collapsing bubbles (with furious advocacy from the self
serving - in the main business players such as Wall Street,
the US National Association of Realtors and the National
Association of Home Builders - for example) – without
considering for a moment, the true costs of allocating
scarce recourses in these endeavors – and even - whether
they work or not. Most of this “good money after bad”
taxpayer funded welfare will end up down a big hole –
never to be seen again – and likely prolong (like the
Japanese 1990 bubble) the recovery process.

In the
“panic to re liquefy’ –the most important structural
issues have barely been considered.

During 2005 - the
current Federal Reserve Bank Chairman Dr Ben Bernanke, just
prior to being nominated to the position in testimony to the
Congress, stated that he did not think the current boom in
housing was a bubble, as reported in the Washington Post Bernanke: There's No Housing Bubble to Go
Bust. Dr Bernanke got the position, it would appear,
because of his deep understanding of the Great Depression.
And no doubt because of his “profuse apology” on behalf
of the Federal Reserve November 8, 2002 in a speech on the occasion of Milton
Friedman’s 90th Birthday – for the Feds role during the
Great Depression.

Is it good enough that these be
“learning on the job” positions – with respect to what
could be described as “fundamental knowledge”?

Dr Anna
Schwartz, now 92, (wife of the late Milton Friedman) as
reported The Weekend Interview - WSJ.com
“Bernanke is fighting the last war” – is with much
justification – a highly respected economist. While no
doubt the appropriate responses may have to be somewhat more
nuanced than Dr Schwartz is suggesting within this short
article (she is a breath of fresh air however) –one
wonders if the interventions to date have been more of a
welfare scheme for the finance sector and business interests
– or - in the wider public interest.

Why is it that
economists, urban planners and property appraisers are so
confused about the dynamics and consequences of property
market bubbles – when property industry practitioners and
particularly “market developers” are acutely aware of
them?

In response to the challenges facing Scoop and the media industry we’ve instituted an Ethical Paywall to keep the news freely available to the public.
People who use Scoop for work need to be licensed through a ScoopPro subscription under this model, they also get access to exclusive news tools.

ALSO:

The warning follows an investigation into representations Spark made on its website and in emails in August and September 2018, notifying in-contract customers receiving its copper-based broadband service of its decision to increase the price by $5 a month. More>>

Artificial intelligence techniques can create massive volumes of fake audio, images and video that is incredibly convincing and near-impossible to detect... While it is tempting to respond with new law, the study finds that the long list of current legislation covering the issues may be sufficient. More>>